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UK predicted to avoid double dip recession

UK predicted to avoid double dip recession

Category: Economy

Updated: 18/10/2010
First Published: 18/10/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The UK economy has bounced back from recession and should avoid a double dip, according to the latest forecasts.

However, the Ernst & Young ITEM Club says that following a surprisingly strong first half of the year, the UK will experience a 'soft patch' over the winter as the pace of recovery loses momentum.

With domestic and overseas markets said to have 'recovered nicely', the forecasters predict the economy will grow by 1.4% this year and by 2.2% in 2011.

The club said that concerns which have arisen on the risks of the UK economy overheating, or suffering a bout of deflation, have been exaggerated.

It predicts that consumer prices index inflation will move below its 2% target from January 2012, as the VAT increase to be introduced at the start of 2011 finally drops out of annual calculations.

Meanwhile, it has not moved from its stance that interest rates will not begin to rise until 2014.

While this would be good news for mortgage borrowers, savers would be less than impressed if this eventually proved to be the case.

With the outcome of the Government's comprehensive spending review set to be revealed on Wednesday, ITEM says its publication should help to reduce uncertainty and therefore spark business investment into life.

"Wednesday's announcement should peel away another layer of uncertainty from the economic outlook and encourage businesses to loosen the purse strings, in much the same way that the formation of the coalition Government and the June Budget did earlier this year," said Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club.

"Helping the UK out of recession has been a bit like peeling back an onion – removing one-by-one the risks to the economy in order to re-build business confidence."

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